The investing world is like a huge farm where the animals that can dominate the population can be either bulls or bears. Almost every day, you will encounter terms such as bull market and bear market. If you are a newbie with the market terms, you might wonder what these terms mean.
It is indeed important that you know these terms and what do these signify? Here you will know the characteristics of each market and how each can affect you.
Why do you need to know these terms?
Bull and bear markets indicate market conditions. The direction of the market is a vital force that can greatly affect your portfolio.
The definite origin of these terms is indeterminate, yet the following is the most believed and shared account. The bear and bull markets were derived from the way each animal strike its preys or victims. The bull tends to thrust its horn up into the air, whereas a bear usually strikes its paws in a downward motion. It was also noted that these animals were set to fight with each other or against other animals during the Elizabethan Era in London.
What do these terms mean?
These are used to describe the current status of the markets – how they are doing in general. The market is also being affected by the attitudes and feelings of the majority of investors, thus, these terms also denote their sentiments about the market and the ongoing trend.
When are these terms being used?
The market trend is being called bullish (bull market) if the inclination tends to rise or is positive. The market share prices tend to increase and this is being sustained in a long term period. The economy of a country is described to be strong; hence, it leads to a higher employment level.
There is also a weaker supply of securities, since majority of investors would like to buy such but only a few are inclined to sell.
Moreover, a bear market is correlated with a strong economy since people normally have the money to spend and they are willing to spend it, thus driving and strengthening the economy more.
On the other hand, the market is termed bearish (bear market) if it shows signs of declining. The market share prices are dropping uninterruptedly. During such phase, the economy slows down and unemployment is escalating for the reason that companies are starting to lay off their employees.
Following the law of supply and demand, during a bear market, more people are expecting to sell securities, but since the supply is higher than the demand, it results to dropping of share prices.
Lastly, a bear market is linked to a weaker economy since consumers are not really spending at all.
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